India’s Data Center Boom Shifts Into a Capital-Intensive Phase

India’s data center industry is entering a more capital-intensive phase in 2026, as capacity additions move beyond incremental expansion toward what investors and operators increasingly describe as core infrastructure.

Companies such as Adani Group, CtrlS, Nxtra, Sify and Web Werks, alongside international operators including Equinix, NTT and Sterling and Wilson, are competing to secure land, power connections and long-term anchor tenants. The race has intensified as cloud providers lock in capacity years in advance to hedge against power and permitting bottlenecks.

Operations become more automated

Data center operations are also changing. Facilities that were once run with fixed configurations and manual oversight are increasingly adopting automation across networking, maintenance and workload management.

“What used to be backend infrastructure is becoming a dynamic layer at the center of enterprise strategy,” said Ranganath Sadasiva, chief technology officer at Hewlett Packard Enterprise (HPE) India.

Network configurations are being adjusted in real time, maintenance is shifting toward predictive models, and security controls are being embedded directly into infrastructure.

The shift is especially visible outside the largest metros. Smaller regional facilities are taking on workloads that were previously centralized, including AI inference and regulated data processing, as companies seek lower latency and tighter control over data residency.

Policy and demand converge

Several forces are converging behind the buildout. India has one of the world’s largest mobile data markets, a rapid 5G rollout, and growing adoption of AI across sectors such as banking, retail and manufacturing. At the same time, government policy has made data sovereignty a binding constraint rather than a compliance option.

“Data infrastructure has moved into the boardroom,” said Unaise Urfi, a partner at KPMG India, adding that capacity decisions are now tied to growth strategy, compliance risk and operational resilience.

Global technology companies are expanding their footprint accordingly.

For these firms, India is no longer treated as a secondary growth market. Capacity planning is increasingly constrained by access to reliable power and land rather than by demand uncertainty.

Geography begins to loosen

Capacity remains concentrated in a handful of metros. Real estate consultancy Anarock estimates Mumbai and Chennai together account for roughly 70% of installed data center capacity, while International Market Analysis Research and Consulting (IMARC) Group projects industry revenues to rise sharply over the coming decade.

That concentration is now creating its own constraints, from land scarcity to grid congestion.

Operators are gradually pushing into Tier-II and Tier-III cities, supported by state incentives and the rise of latency-sensitive workloads. These sites are smaller and modular, designed to complement rather than replace large hyperscale campuses.

IMARC estimates industry revenues will rise from $5.55 billion in 2025 to $13.11 billion by 2034, driven by cloud adoption, AI workloads and regulatory requirements.

Artificial intelligence is changing the economics of data centers. GPU-dense racks consume several times more power than conventional servers and generate significantly higher heat loads, forcing operators to rethink cooling, layout and power redundancy.

Liquid cooling, direct-to-chip systems and higher-density designs are moving from niche deployments to standard specifications. At the same time, operators are under pressure to improve power and water efficiency as sustainability metrics become contractual requirements for global clients.

Industry estimates suggest that as much as half of all installed data center capacity over the next decade could be dedicated to AI workloads, fundamentally altering power demand, rack density, and facility economics.

Power emerges as the constraint

Power availability has become the industry’s binding constraint. Grid reliability remains uneven, pushing operators to rely on diesel backup systems that are costly and increasingly exposed to regulatory and environmental scrutiny.

“The green imperative is no longer a corporate social responsibility exercise,” said KPMG India’s Urfi. “It is becoming a license to operate as hyperscalers audit energy sourcing, emissions, and water use across their entire supply chain.”

Hyperscalers are tightening renewable energy requirements across their supply chains, subjecting co-location providers to audits on emissions, water use and energy sourcing. This has accelerated interest in solar, wind, battery storage and, longer term, green hydrogen, while raising upfront capital costs.

By 2026, operators expect a growing share of facilities to run with limited human intervention, using AI to anticipate failures, manage congestion and optimize energy use. Networking is evolving in parallel, with Ethernet-based architectures replacing proprietary interconnects as AI workloads scale.

“Manual intervention will increasingly feel archaic,” said Sadasiva of HPE India, referring to the growing use of AI in monitoring, optimization, and fault prediction across large facilities.

Data center operators also expect 2026 to mark a structural shift in how facilities are designed and run, as AI workloads push up rack densities and energy complexity.

“Higher rack densities and advanced cooling such as direct-to-chip systems will become the norm, while AI-led predictive analytics will shift from nice-to-have to core operational capability, driving real-time energy efficiency and resilience,” said Anil Nama, CIO of CtrlS Datacenters.

For India, data centers are increasingly being viewed as strategic assets that sit at the intersection of energy policy, digital regulation and industrial growth.

The question for the next phase is whether capacity can be delivered fast enough and cleanly enough to support the AI-driven economy that is taking shape.